Sunday, August 6, 2017

Sensex, Nifty charts (Aug 04, 2017): bulls keep charging ahead

FIIs were net buyers of equity on Wed. & Thu., but net sellers on the other three days of the week. DIIs were net sellers of equity on Wed. & Thu., but net buyers on the other three days.

For the week, FIIs were net sellers of equity worth Rs 25 Billion. DIIs were net buyers of equity worth Rs 35.5 Billion. Sensex eked out a 15 points gain, while Nifty gained 52 points (0.5%) on a weekly closing basis.

Manufacturing and services sectors were hit by the switch to GST regime in Jul '17. Nikkei India Manufacturing PMI contracted to 47.9 against 50.9 in Jun '17. Services PMI contracted to 45.9 against 53.1 in Jun '17. (The 50 point mark separates expansion from contraction.) The composite PMI (manufacturing + services) dropped to 46 from 52.7 in Jun '17.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex touched a new high of 32686 on Wed. Aug 2, but formed a 'reversal day' bar (higher high, lower close) that triggered a shallow correction of 580 points (1.8%).

The index found support from its rising 20 day EMA on Fri. Aug 4 and formed another 'reversal day' bar (lower low, higher close) that enabled Sensex to close higher for the week.

Daily technical indicators have dropped from their respective overbought zones. Negative divergences (marked by blue arrows) on ROC, RSI and Slow stochastic - which touched lower tops while the index touched a new high - led to the correction. 

The index is trading above its three rising EMAs in a bull market. Some more correction or consolidation is possible, but large liquidity inflows into the stock market is keeping the index buoyant.

Q1 (Jun '17) results are almost out of the way, with no significant increase in earnings. So, index valuation remains much higher than its long-term average. The stock market is looking ahead to better Q2 and Q3 results on the back of GST implementation.

Investing near a market top is always a risky proposition. So is sitting out for a correction and watching the index rise even higher. Small investors often face this problem. What is the solution? 

I have mentioned this many times before but don't mind repeating it: Have financial and asset allocation plans in place. The plans will guide you what to do under different market conditions. Otherwise, investing turns into a game of chance. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new high (10138) and closed higher for the 5th week in a row. All dips are being bought as bulls are beginning to run amok.

The index is trading well above its two rising weekly EMAs in a bull market. All four weekly technical indicators are inside their respective overbought zones - as they have been for the past 6 months.

However, ROC, RSI and Slow stochastic are showing negative divergences by showing slight downward momentum as the index touched a new high. A bit of correction or consolidation may be in the offing.

Nifty's TTM P/E is at 25.61 - much above its long-term average. The breadth indicator NSE TRIN (not shown) has moved up inside its overbought zone, and is likely to temporarily limit index upside.

Bottomline? Sensex and Nifty charts touched new highs again. With FIIs booking profits and DIIs continuing to buy, any correction is unlikely to be deep. Stay invested. Book partial profits - particularly in mid-cap and small-cap stocks.

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